SAN FRANCISCO - A US court on Friday ordered Toshiba Corp. to give Western Digital Corp. two weeks' notice before closing the sale of its flash memory business.
The Superior Court of California's decision was based on an agreement between the two companies. Western Digital, the joint venture partner of the crisis-hit Japanese conglomerate, had earlier sought an injunction to block the profitable chip unit sale.
Western Digital is also seeking arbitration with an international court, claiming any transaction regarding the chip unit sale without its consent breaches its contract with Toshiba. Its attempt to seek an injunction was aimed at stopping the process of the unit sale before arbitration, which is scheduled between September and October.
Toshiba is rushing to sell Toshiba Memory Corp. to cover massive losses stemming from its now-bankrupt U.S. nuclear unit. The company will face delisting from the Tokyo Stock Exchange unless it eliminates its negative net worth by next March.
Western Digital, which has jointly invested in Toshiba's Yokkaichi flash memory plant in central Japan, argues the Japanese company needs its consent for the chip unit sale. With the court order, it would be able to come up with countermeasures within the 14 days.
The Japanese manufacturer said in a statement it aims for an early closing of the memory unit sale, while the U.S. data storage firm said, "Our ongoing discussions with Toshiba and its stakeholders have been constructive, and we will continue to work to seek a solution that is in the best interests of all parties."
The California court also ordered Toshiba to publicly announce within 24 hours the signing of any agreement that would close the chip unit sale. This requirement would be valid until 60 days after an arbitration panel is formed at the international court.
Toshiba said it expects the arbitration panel to be formed within two months and that the court order will lose effect by around late December. The troubled conglomerate is unlikely to close the sale by then, it added.
Last month, Toshiba chose a government-led Japan-US-South Korean consortium as its preferred bidder for the chip unit sale, with the aim of sealing a deal by the end of June.
The consortium consists of the state-backed Innovation Network Corp. of Japan, the state-owned Development Bank of Japan, US investment fund Bain Capital, and South Korean chipmaker SK Hynix Inc. of South Korea.
But the Japanese firm missed its self-imposed deadline as negotiations stalled after SK Hynix demanded voting rights in the chip unit instead of only providing loans as initially planned.
Struggling to close a deal with its favored consortium, Toshiba has resumed talks with other bidders including Western Digital and Taiwanese electronics maker Hon Hai Precision Industry Co.
Toshiba also faces a deadline on Aug. 10 to submit an annual financial report that was supposed to be presented by the end of June. Whether the company will be able to gain approval from its auditor for its full-year account ended in March is key to staying listed.
Toshiba shares are already on the Tokyo bourse's watch list following an accounting scandal in 2015 with its governance being reviewed. An adverse opinion from its auditor could lead the TSE to deem Toshiba's plan to improve internal control as insufficient.